We wrap our special series with an outlook for private credit.

The value proposition of the asset class was fully supported through last year’s extreme volatility as experienced managers and their portfolios emerged mostly unscathed. But as market conditions develop this year, how will private credit terms be impacted?

BSL technicals, such as fund flows, have a mild gravitational effect on direct lending pricing and structures. When liquid loan yields widen or contract, illiquid loan yields follow, directionally if not in lock-step. Junk bond all-in yields for single-B new issues are down to 5%. For investors in secured, floating rate, private credit, earning at least 200 bps north of that is very favorable relative value.

With supply and demand in private credit driven by dry powder, won’t 2021 be a continuation of the frothy market we saw at the end of 2019 (and early 2020), especially as the economy gathers steam? Hard to recall when lending wasn’t competitive. But residual pandemic drag on some sectors should keep the foam off the latte.